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Morgan Stanley (MS) Q1 Earnings Beat Estimates, Shares Slip

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Zacks Equity Research
·5-min read
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Morgan Stanley’s MS first-quarter 2021 adjusted earnings of $2.22 per share easily outpaced the Zacks Consensus Estimate of $1.72. Also, the bottom line jumped substantially from $1.01 earned in the year-ago quarter. Results for the reported quarter included the impact of acquisitions of Eaton Vance Corp. (closed in March 2021) and E*TRADE Financial Corporation (October 2020).

The stock slipped almost 1.5% during pre-market trading. Notably, the full-day trading session will display a clearer picture.

As anticipated, Morgan Stanley’s trading business delivered a solid performance. Fixed income trading revenues grew 44% year over year and equity trading income rose 17%.

Further, performance of the IB business was impressive. Equity underwriting fees soared 347% from the prior-year quarter, and fixed income underwriting jumped 41%. Also, advisory fees were up 33%. Therefore, IB fees surged 128%.

Additionally, higher net interest income, mainly driven by a rise in total loan balance (up 37%) and plunge in interest expenses supported the top line.

However, mounting operating expenses hurt the results to some extent.

Results excluded integration-related expenses related to E*Trade Financial and Eaton Vance deals. Including this, net income applicable to common shareholders was $4 billion, which improved significantly from $1.6 billion recorded a year ago.

Trading, IB Aid Revenue Increase, Costs Rise

Net revenues were $15.7 billion, surging 61% from the prior-year quarter. Also, the top line beat the Zacks Consensus Estimate of $13.8 billion.

Net interest income was $2 billion, which jumped 50% from the year-ago quarter. This was largely due to an 81% plunge in interest expenses.

Total non-interest revenues of $13.7 billion soared 63% year over year.

Total non-interest expenses were $10.5 billion, up 45%.

The company recorded provision benefit $98 million against a provision of $407 million in the prior-year quarter. Allowance for credit losses on loans and lending commitments was $1.1 billion as of Mar 31, 2021.

Robust Segment Performance

Institutional Securities: Pre-tax income from continuing operations was $3.4 billion, surging significantly from $950 million in the prior-year quarter. Net revenues were $8.6 billion, growing 66%. The rise was mainly driven by higher investment banking and trading revenues.

Wealth Management: The segment includes results of E*Trade Financial. Pre-tax income from continuing operations totaled $1.6 billion, up 52%. Net revenues were $6 billion, increasing 47% driven by higher transactional, net interest income and asset management revenues.

Total client assets as of Mar 31, 2021, were $4.2 trillion, up 77% year over year.

Investment Management: The segment includes results of Eaton Vance. Pre-tax income from continuing operations was $370 million, growing substantially from $143 million recorded in the year-ago quarter. Net revenues were $1.3 billion, surging 90%. The upswing was mainly driven by higher performance-based income and asset management fees.

As of Mar 31, 2021, total assets under management or supervision were $1.4 trillion, up significantly from $584 billion as of Mar 31, 2020. The improvement was mainly driven by inclusion of Eaton Vance assets and solid long-term inflows.

Strong Capital Position

As of Mar 31, 2021, book value per share was $52.71, up from $49.09 in the corresponding period of 2020. Tangible book value per share was $38.97, down from $43.28 on Mar 31, 2020.

Morgan Stanley’s Tier 1 capital ratio was 19.1% compared with 17.3% in the year-ago quarter. Tier 1 common equity ratio was 17.3%, up from 15.2%.

Share Repurchase Update

During the quarter, Morgan Stanley repurchased shares worth $2.1 billion. It must be noted that the company resumed buybacks following approval for the same from the Federal Reserve in December 2020.

Our Take

Morgan Stanley’s efforts to diversify operations with more focus on those that are less dependent on capital markets are commendable. The acquisitions of Eaton Vance and the buyout of E*Trade Financial are steps in this direction. However, the coronavirus-related concerns and economic slowdown are expected to continue hurting the company’s financials in the near term.

Morgan Stanley Price, Consensus and EPS Surprise

Morgan Stanley Price, Consensus and EPS Surprise
Morgan Stanley Price, Consensus and EPS Surprise

Morgan Stanley price-consensus-eps-surprise-chart | Morgan Stanley Quote

Currently, Morgan Stanley carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Performance of Other Large Banks

Large reserve releases, along with solid capital markets performance, drove JPMorgan’s JPM first-quarter 2021 earnings of $4.50 per share. The bottom line handily outpaced the Zacks Consensus Estimate of $3.05.

Given the strong capital markets performance, Goldman Sachs’ GS first-quarter 2021 earnings per share of $18.60 significantly surpassed the Zacks Consensus Estimate of $9.79. Also, the bottom line compares favorably with $3.11 per share earned in the year-earlier quarter.

Bank of America’s BAC first-quarter 2021 earnings of 86 cents per share handily beat the Zacks Consensus Estimate of 65 cents. Also, the bottom line compared favorably with 40 cents earned in the prior-year quarter level.

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